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Why Coca-Cola Shares Are Rising Despite Coronavirus Impact

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Coca-Cola  (KO) - Get Coca-Cola Company Report shares rose Tuesday after the company said its first quarter earnings will likely come in slightly lower than initially expected due to the coronavirus. But management reaffirmed its 2020 earnings guidance and even raised its quarterly dividend, giving investors confidence in the company, while many others falter in the face of the pandemic.

RealMoney’s Bruce Kamich says to monitor Coca-Cola stock, RealMoney's stock of the day, closely.

The stock rose as much as 2%, before the gain moderated to 1.02% to $52.37 a share, as the border market moderated its gains. The stock, like most others in the U.S., is down considerably from its all-time high hit in February. It’s down 13% from that level, as the company has 7% revenue exposure to China and also has packaging materials manufactured out of the country.

Coca-Cola said it expects volumes to come in 2% to 3% below initial forecasts and for organic revenue to come in 1% to 2% lower than previously expected. Revenue, according to FactSet estimates, is currently expected at $8.73 billion, so the result could come in at around $8.56 billion. The earnings per share impact would bring current estimates down to about 46 cents, a 4.1% impact.

For China, Starbucks  (SBUX) - Get Starbucks Corporation Report may serve as an indicator for other consumer companies that either sell or produce out the country, as the coffee maker recently said its sizable impact on sales and earnings in China was mostly seen in the beginning of the quarter. People in China are beginning to get out of the house and manufacturing plants are starting up again. Stores are reopening very slowly and with safety restrictions. This bodes well for demand for Coca-Cola products in the country.

Management’s reaffirmed guidance for the full year — earnings per share of $2.25 — may potentially indicate it will manage costs effectively for the year as revenue slips at least in the first quarter.

The company did not disclose if the negative Q1 impact is more of a supply or demand issue or even what geography the impact is in. The impact could be in China, the U.S. or Europe. But if it’s in China, it’s possible that U.S. sales could come in satisfactorily.

Consumers in the U.S. have been stocking up on staples, as they’ve anticipated the spread of the virus into the U.S. and they need groceries and other items. Costco  (COST) - Get Costco Wholesale Corporation Report, for example, saw a better-than-expected sales result for its most recent quarter, as consumers stocked up, management said.

Also adding to the optimism on Cocoa-Cola was a dividend raise, an ultimate sign of confidence in earnings and cash flow for the future. The company raised its dividend by 2.5% to 41 cents a share. Compared to the current stock price, and annualized, that’s a 3.15% yield, far superior to the treasury market. 

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